Amedisys: The Good, the Bad, and the Ugly

There are plenty of negatives for Amedisys, but a few positives as well.

Some stocks are reminiscent of sad country songs. The dog dies, the house burns down, and the truck won't start, but other than that everything looks great. Amedisys(Nasdaq: AMED) could be one of those stocks. Let's take a look at the good, the bad, and the ugly for this home health and hospice provider.

The uglyWe'll begin with the ugly. Just look at the stock's chart over the past couple of years.

You might notice that the stock has rebounded nicely from its lows a few months ago, moving up around 40% since mid-May. Does that mean that things are now looking good for Amedisys? Not yet.

The company's results from the last quarter were ugly, too. Earnings were down 65% compared with the same quarter last year. Lower revenue from the company's core home health business accounted for a significant part of this decrease. Amedisys reported that home health revenue dropped by $17 million compared with last year.

Why are things so bleak? Amedisys receives more than 80% of its revenue from Medicare. Earlier this year, the Centers for Medicare and Medicaid Services (CMS) cut Medicare reimbursement rates for home health. The company states that $12 million of its loss of home health revenue stemmed directly from these rate decreases.

The badIn July, CMS announced a proposal to increase home health reimbursements by 2.5% for fiscal year 2013. Good news for Amedisys? Unfortunately, no.

CMS must reduce rates by 1% because of Obamacare provisions. It also adjusted case-mix rates (the amount paid to providers for specific conditions treated) and the wage index, which specifies how providers in different geographic regions are reimbursed. The net impact for Amedisys is a 0.10% reduction in home health reimbursement.

This CMS decrease isn't too bad. However, it could get worse. The sequestration provisions of the deal Congress reached in 2011 call for an automatic reduction of Medicare home health and hospice payments of 2% in 2013. If Congress goes over the fiscal cliff, Amedisys and others in the industry will be hit by further cuts.

The company received more bad news in July as well. Humana(NYSE: HUM) notified Amedisys that it's ending the agreement between the two organizations, effective Sept. 1. The home health services provided under the Humana contract amount to around 5% of Amedisys' service revenue.

Are you beginning to hum a sad country tune yet?

The goodIs there any good news for Amedisys? Sure.

For one thing, competitors are struggling, too. Amedisys increased revenue in the most recent quarter. Rival Gentiva(Nasdaq: GTIV) saw revenues decrease compared with last year. It should be noted, however, that revenue would have been slightly higher from last year, excluding branches that were sold or closed.

Almost Family(Nasdaq: AFAM), on the other hand, increased revenue by 6% compared with the same quarter last year. However, the company's earnings declined year-on-year.

Another piece of good news is that Amedisys reaffirmed its earnings guidance for the remainder of 2012 and raised the low end of its revenue guidance. Management expressed confidence in a significant bump in revenue for third quarter this year compared with the second quarter.

Probably the best news for Amedisys, though, stems from potential increased adoption of Accountable Care Organizations (ACOs). These organizations include multiple health-care providers that focus on improving patient outcomes and reducing costs.

Amedisys CEO William Borne stated that the company scored better than all of its rivals in the geographic areas that it serves in the latest CMS outcome reports. Amedisys also achieved higher patient satisfaction scores than its competitors, according to Borne. These types of results are important as ACOs look to partner with providers that can deliver the best patient outcomes.

Fistful of dollarsMovie buffs know that the spaghetti Western The Good, the Bad, and the Ugly was part of a trilogy that began with the movie A Fistful of Dollars. I think that the badness and ugliness of the home health industry should make us look elsewhere to deposit our own fistful of dollars.

One potential alternative with ties to home health is Allscripts(Nasdaq: MDRX). The health information technology company serves multiple health-care markets. The stock trades at a forward P/E of 12 and appears to have solid growth potential.

While Amedisys has some good points, the bad and the ugly will probably carry the day for the near term. Investors should probably sing to a different tune for now.

Author

Keith began writing for the Fool in 2012 and focuses primarily on healthcare investing topics. His background includes serving in management and consulting for the healthcare technology, health insurance, medical device, and pharmacy benefits management industries.
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